Determine continuously compounded interest rate suitable

Assignment Help Financial Management
Reference no: EM131009929

In the following we consider July vanilla option for stock: Microsoft, MSFT. (a) Use appropriate current Treasury bill data to determine a continuously compounded interest rate suitable to price July 2016 options. Notes: You can use “ U.S. Department of Treasury’s website / Resource Center “ as your sources and use 52-Week T-bill discount rate. Please show your computations for continuously compounded interest rate. (b) Find the historical volatilities σˆ of the stock estimated from all closing prices of the stock for the last 12 months. Note: You can use “Yahoo finance” as your sources of data and document your procedure. (c) Using a two-period Binomial model with the observed historical volatilities and the observed interest rate of the T-bill, find the price of the European call options on Microsoft stock with strike price of $50 and assume no dividend.

Reference no: EM131009929

Questions Cloud

What dividend did the stock pay : A financial adviser claims that a particular stock earned a total return of 10% last year. During the year the stock price rose from $30 to $32.50. What dividend did the stock pay?
What is percentage return : Suppose you have $90,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $90 per share. You notice that a put option with a $90 strike is available with a premium of $7.2. Calculate your percentage..
What are the two benchmark securities for measuring risk : What does financial analysts rely on when researching different investments? What are two well-known market indices? What is the basis for each index? Do these market indices track a large number of stocks? If not why are they used so much? What are ..
Dollar-denominated american put option : Consider a 9-month dollar-denominated American put option on British pounds. You are given that: The current exchange rate is 1.43 US dollars per pound. The strike price of the put is 1.56 US dollars per pound. The British pound continuously compound..
Determine continuously compounded interest rate suitable : In the following we consider July vanilla option for stock: Microsoft, MSFT. (a) Use appropriate current Treasury bill data to determine a continuously compounded interest rate suitable to price July 2016 options.Find the historical volatilities σˆ o..
Market share is the best indicator of company performance : Market Share is the best indicator of company performance.” Is this a reasonable statement? The business philosophy of a company is a good predictor of profitability.” Is this a reasonable statement?
Recommend the company do if the annual discount rate : Your company is considering whether to in source or to purchase a part for your product. In order to produce the part yourself, you will need to purchase the raw materials for a cost of $800 per part. It takes 6 months to create 90 parts. What would ..
Regression models-describe multiple regression analysis : What benefit does a variable provide when developing and examining models? Explain the purpose of simple linear regression and scatter diagrams. Please provide a simple linear regression model and define each variable used. Describe multiple regressi..
Semi-annual coupon-conversion ratio-holding period return : A convertible bond has a 5 percent, semi-annual coupon and a conversion ratio of 35. The bond has a face value of $1,000 and matures in 18 years. The current yield to maturity is 4.9 percent. Assume that you buy this bond today and sell it one year f..

Reviews

Write a Review

Financial Management Questions & Answers

  What was his markup on selling price and on cost

The Limited is planning a new line of leather jean jackets for fall. It plans to retain the jackets for $100. It is having the jackets produced in the Dominican Republic. Although The Limited does not own the factory, its product development and desi..

  Best employees from private employment agencies

For the past years, Saveo has obtained its best employees from private employment agencies. now that it has three additional jobs to fill, it will probably continue to use

  What must the expected return on this stock be

A stock has a beta of 1.25, the expected return on the market is 12 percent, and the risk-free rate is 2 percent. What must the expected return on this stock be?

  calculated using the lump sum PV or FV formula

Twenty years ago, a relative bought you a zero bond that matured at $1000 today. Zeroes pay no periodic interest and is calculated using the lump sum PV or FV formula. The stated interest rate during the 20-year period was 2.32% and inflation average..

  The main advantage of deterministic models

The main advantage of deterministic models is that they

  Further assume that the returns are normally distributed

Suppose the average return on an asset is 12.3 percent and the standard deviation is 21.9 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel to determine the probability that in any given year you wi..

  After deciding to buy a new car you can either lease the

after deciding to buy a new car you can either lease the car or purchase it with three-year loan. the car you wish to

  Distribution of the stock dividend

The company with the common equity accounts shown here has declared a 15 percent stock dividend when the market value of its stock is $31 per share. What would be the number of shares outstanding, after the distribution of the stock dividend?

  An entity has the following income for the current year

An entity has the following income for the current year: The entity has earnings and profits (AAA for an S corporation) of $900,000 at the be-ginning of the year.

  Planning for retirement

How much money will Tom and Tricia have in 45 years if they do nothing for the next 10 years, then puts $2400 per year away for the remaining 35 years? How much money will Tom and Tricia have in 45 years if they put $2400 per year away for the next 1..

  Assume these amounts will be compounded at an annual rate

Suppose you deposit $2,000 at the end of year one, nothing at the end of year 2, $800 at the end of year 3, and $1,200 and the end of year 4. Assume these amounts will be compounded at an annual rate of 8%. How much will you have deposited at the end..

  Calculate the projects NPV-IRR-MIRR and Payback

Madison manufacturing is considering a new machine that costs $350,000 and would reduce pre tax manufacturing costs by $110,000 annually. Madison would use the 3 year MACRS method to depreciate the machine, and management thinks the machine would hav..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd